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Rate hold was expected: RP Data

By webmaster 07 July 2010 | 1 minute read

Volatility in the global market forced the RBA to keep rates on hold yesterday.

In announcing the Board’s decision, RBA governor Glenn Stevens said the world's growth trajectory remained fragile, with Europe and the US struggling while emerging market economies powered ahead.

“Financial prices have been more volatile and equity prices and government bond yields in major countries have declined. Some tightness in funding markets is evident, though not on the scale seen in late 2008,” Mr Stevens said.

In addition, the less than impressive performance of Australia’s housing market also encouraged the RBA to keep rates on hold at 4.5 per cent for the second consecutive month.

RP Data’s national research director Tim Lawless said that the spate of rate hikes last year and early this year have had the desired effect of cooling the residential housing market and quelling the exuberance seen in some key regions.


“We have seen capital growth come to a virtual standstill over April and May with the RP Data – Rismark Hedonic Home Value Index recording a gain of 0.2 per cent in April and 0.6 per cent in May,” Mr Lawless said.

In addition, RP Data’s auction clearance rates have fallen to below 60 per cent in recent weeks, the number of new home loans has plummeted and consumer confidence has fallen.

“Even though interest rates are stabilizing we don’t expect any return to the buoyant capital gains seen last year and over the first quarter of 2010. The uncertainty surrounding the federal election is likely to keep some buyers out of the market, as are affordability constraints. We would expect capital gains to progress at a much more modest and sustainable rate, annualizing at around 5 to 7 per cent. Where interest rates are going from here will largely depend on how the CPI data looks when it is released on July 28.”

But despite the escalating problems in the Australian housing market and abroad, a spray of new data suggests future rate increases remain on the cards.

Recent figures show a surge in mineral prices helped deliver a huge trade surplus of $1.6 billion in May – the third largest on record – underlining the strong long-term prospects for the local economy.

World commodity prices are off their peaks but those most important to Australia, namely iron ore and coal, remain at very high levels and the terms of trade are approaching their peak of two years ago.

Rate hold was expected: RP Data
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